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Trade in Services

The UK is a major global hub for trade in services, and the second largest exporter of services in the world. Services account for around 80% of the UK’s GDP. In 2015, UK services exports were around £225 billion, of which around 36% went to the EU. Intra-EU services trade is dominated by Germany, France and the UK, each accounting for between 11-12% of exports. Germany accounts for close to 17% of all intra-EU services imports. Along with France and the Netherlands, it is the biggest export destination for UK services.

Source: Frontier Economics

Outside the EU, the United States is the UK’s largest trading partner in services accounting for 23% of total UK exports and 18% of UK imports in 2014. EU services exports, including UK exports, to the rest of the world were a little under £600 billion, of which 22% came from the UK. As with the UK, its biggest single export market is the US, followed by Switzerland.

Intra-EU services liberalisation rests on treaty provisions under the Single Market Act, including commitments on the movement of people, which greatly facilitates services supply, and on specific EU directives, notable the services directive of 2005, and various sector directives. Data on services trade restrictiveness compiled by the OECD suggests that the UK has the second most liberal services trade regime in the EU, after the Netherlands.

The General Agreement of Trade in Services (GATS), which entered into force with the inception of the WTO in 1995, provides the multilateral framework for services trade. While the agreement was a landmark in rulemaking in trade, in that it brought services trade under the WTO’s binding dispute resolution mechanism and ensured that each member made specific commitments as to the maximum level of services restrictions it would implement.

However the lack of progress on WTO services negotiations over the last two decades, and the fact that countries have liberalised unilaterally over the period, reduces both the relevance of the GATS and the security of access offered through it. Partly in response to the lack of progress under the WTO, a subset of WTO members, including the EU, began negotiating The Trade in Services Agreement in a bid to deepen market access commitments and to improve the coverage of rules. Progress on that is currently stalled

Because of the importance of services to the UK and the EU, and the extent of intra-EU liberalisation, the architecture for future services trade between the UK and the EU will be a vital issue. The UK may have the opportunity to achieve significant gains from negotiating services liberalisation agreements with non-EU trade partners, but only if these are of a depth comparable to what the EU has achieved internally. A reintroduction of restrictions on the movement of people can also have significant impacts on the UK services trade, potentially reducing services exports by around 10%.

 

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